TMI Blog1996 (1) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... these are unusual cases wherein the Tribunal has to voice a grievance against the Income-tax Department in connection with its functioning as such. A few relevant background facts are required to be noted at the outset to highlight the grievance of the appellant Appellate Tribunal. Background facts : Surana Steels Pvt. Ltd., Binjusaria Metal Box Co. Pvt. Ltd. and Agroha Extraction Ltd., who are respondents Nos. 2 in each of these appeals are the concerned assessees. They were the appellants in three income-tax appeals before the Income-tax Appellate Tribunal, Hyderabad. The Special Bench thereof disposed of all the three appeals by common order dated February 4, 1993, as they involved consideration of a common question of law relating to the construction of section 115J of the Income-tax Act, 1961 (hereinafter referred to as "Income-tax Act"). This decision of the Special Bench resulted in three writ petitions moved by the Deputy Commissioner of Income-tax, Hyderabad, before the High Court of Andhra Pradesh. The assessee-respondents Nos. 2 in each of these appeals had succeeded before the Special Bench of the Appellate Tribunal on the construction of section 115J of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-tax Act and the merits of the decision of the High Court on this point. We will, therefore, only consider, in these proceedings, the grievances voiced on behalf of the Appellate Tribunal by its learned counsel Shri Subba Rao. Rival contentions : Shri Subba Rao, learned counsel appearing for the appellant, the Tribunal, contended that the High Court had patently erred in law in taking the view that the President of the Income-tax Appellate Tribunal had no jurisdiction to constitute a Special Bench for hearing the appeals of the respondent-assessees. He submitted that the Division Bench of the High Court had misconstrued and misinterpreted the relevant statutory provisions of the Income-tax Act as well as the regulations in this connection. According to Shri Subba Rao, the High Court had wrongly assumed that a Special Bench can be constituted by the President only on the basis of a judicial order and not in exercise of his powers under sub-section (3) of section 255 of the Income-tax Act. According to learned counsel, the High Court had equally erred in taking the view that, on the facts of the present case, the Special Bench was constituted on the whims and fanci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t forward its case in the appeals taken up for decision by the Special Bench. Point No. 2 : Whether the President of the Tribunal was legally competent to constitute a Special Bench for hearing the three appeals moved by respondent No. 2--assessees in these three cases and whether the Special Bench was validly constituted. We shall deal with the aforesaid points one by one. Point No. 1 : So far as this point is concerned the High Court in the impugned judgment at page 31 has noted that it was true that the matter was adjourned at the instance of the Departmental Representative from time to time on 11 occasions from October 28, 1992, up to January 4, 1993. However, on January 4, 1993, when the matter was posted for hearing before the Special Bench, Shri H. Srinivasulu, who was appointed as designated officer, to argue the matter before the Special Bench fell sick. It was also not disputed that he was shifted to Hyderabad Nursing Home and the doctors had advised him rest for four weeks. It was also true that Shri Mani, another Deputy Commissioner, who was appointed to assist Shri Srinivasulu, was ready to argue the matter and in fact he argued the matter to the best of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o argue an adjourned matter for which a Special Bench is constituted at Hyderabad where the President had to come from Delhi and another member had to come from Bombay, the Revenue should have taken all care to see that some alternative arrangement was made so that the matter may not get unduly prolonged and indefinitely adjourned and that in such situations the Special Bench of the Tribunal could have legitimately required the Revenue to make alternative arrangement for getting the matter argued. But for that purpose a short adjournment of a day or two could have been granted when the Departmental Representative who was in charge of the matter was admitted to a nursing home. In any case written submissions could have been taken on record and considered by the Tribunal instead of totally brushing them aside. However, as noted earlier and as ultimately, the Revenue has not suffered till date and its viewpoint has been accepted by the High Court on the construction of section 115J of the Income-tax Act we do not dilate on this question any further. That disposes of the first point. Point No. 2 : So far as this point is concerned, it is necessary to have a look at the relevant f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in V. V. Trans-Investments (P) Ltd. v. Income-tax Officer [1992] 42 ITD 242, we are of the opinion that in order to secure uniformity in judicial decisions and prevent judicial chaos and in order to avoid uncertainties on such a vital point of public importance, constitution of a Full Bench is very essential to resolve the following questions : (1) Whether depreciation and loss should necessarily be present for the purpose of adjustment while computing the book profit under section 115J of the Income-tax Act read with section 205(1), proviso (b), of the Companies Act ? (2) For the purpose of computing the book profits under section 115J of the Income-tax Act read with section 205(1), proviso (b), of the Companies Act whether depreciation includes loss ? (3) If an assessee had not incurred losses in the previous years but only had unabsorbed depreciation claim, the claim for deduction under section 115J(1A)(iv) would not be available to such an assessee ? (4) In a case where there is profit in a year but after adjustment of depreciation it results in a loss, can no adjustment in book profit under section 115J of the Income-tax Act be allowed ? " This reference was made on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... special leave petition at page 135 of the paper book. It is also brought on the record of this case that one of the members of the Tribunal, namely, Shri Chander Singh who was a signatory to the reference dated September 25, 1992, had earlier taken the view by his order dated July 30, 1992, that this question was not required to be referred for decision to the Special Bench. But even that apart, even though he might have subsequently changed his view and recommended constitution of a Special Bench for resolving the questions involved centering round construction of section 115J of the Income-tax Act in the company of Shri T. V. Rajagopala Rao, Judicial Member, only four listed matters were suggested to be placed before the Special Bench for decision. However, the Special Bench was constituted by the President not for deciding these four matters but for deciding the three tax appeals being I. T. A. Nos. 1845/ Hyd. of 1990, 811/Hyd. of 1992 and 822/Hyd. of 1992, which were moved by the present three assessee-respondents in these proceedings and it is the decision of the Special Bench in these appeals that has resulted in the present proceedings. We wanted, therefore, to know from le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bar Association, the President of the Tribunal invited comments from the senior member of a Hyderabad Bench of the Tribunal. It is more curious that the very same member who had rendered judgment which was in V. V. Trans-Investments (P) Ltd. v. ITO [1992] 42 ITD 242 (Hyd) replied to the President suggesting the constitution of the Special Bench. Counsel for the petitioner submits that in the facts and circumstances of the case that was but a command performance at the instance of the President. He submits further that since there was no judicial order requesting for a reference of any question to a Special Bench, the constitution of the same was not justified. We see considerable force in the submission, since a court or a judicial Tribunal is expected to discharge their judicial functions by passing judicial orders and not by intra-departmental communications. We also see force in the submission of counsel that had the matter been posted for hearing on the judicial side, the Department would have had an opportunity to project its views before the Hyderabad Bench deliberated upon the alleged conflict of authorities, rather than depending on views expressed in articles and journals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istrative function of the President to constitute Benches from amongst the members of the Tribunal for exercising the powers and functions of the Appellate Tribunal. Similarly, sub-section (3) empowers the President for disposal of any particular case to constitute a Special Bench consisting of three or more members one of whom shall necessarily be a Judicial Member and one an Accountant Member. The functions entrusted under sub-sections (1) and (3) of section 255 to the President of the Appellate Tribunal are obviously administrative functions. They have nothing to do with the exercise of any judicial power. It is, of course, true that as per sub-section (5) the Appellate Tribunal can regulate its own procedure and the procedure of Benches and for that purpose can frame appropriate regulations. In exercise of that power, the Income-tax Appellate Tribunal has framed regulations. The relevant regulation for the present purpose is regulation 98(A). It reads as under : " Regulation 98(A) With a view to bring about uniformity in the procedure for reference of cases to the President, Income-tax Appellate Tribunal for constitution of the Special Benches consisting of three or more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in error when it took the view that a Special Bench can be constituted by the President only pursuant to a judicial order and not in exercise of his administrative powers. It is of course true that in any pending matter before a Bench of two learned members, if it is felt by the learned members that a Special Bench is required to be constituted, they can pass a judicial order in the light of the procedure laid down by regulation 98(A). But such a situation had never arisen on the facts of the present case. We have already seen above that the two learned members had recommended to the President to constitute a Special Bench for resolving the controversy centering round the construction of section 115J of the Income-tax Act by their communication dated September 25, 1992. That was styled as a reference under section 255(3) of the Income-tax Act. It was merely a recommendation for invoking the administrative powers of the President under section 255(3) for constituting a Special Bench. It was certainly not a reference under section 255(3) read with regulation 98(A), We fail to appreciate how the High Court in exercise of its power under section 226 of the Constitution could sit in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is, however, true that the President in exercise of its administrative powers under section 255(3) cannot just constitute a Special Bench without any rhyme or reason. Such an administrative exercise can be demonstrated to be unreasonable, capricious or mala fide on a given set of facts. But, in our view, the present case was not of that type. There was a conflict of opinion between the two Benches of the Tribunal, namely, the Madras and Hyderabad Benches. It is, however, true that the Madras Bench decision was by a single member while the Hyderabad Bench decision was by a Division Bench. Still it could not be said that there was no conflict of decisions between the two Benches of the Tribunal. That itself constituted a rational and valid ground for the President to act in exercise of his administrative powers to constitute a Special Bench if he thought it fit to do so. Such an exercise, on the facts of the present case, cannot be styled as an arbitrary or whimsical or fanciful one as wrongly and uncharitably assumed by the Division Bench of the High Court. It is now time for us to deal with one apparent inconsistency underlying the order of the President of the Tribunal, con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the circular. A copy of the circular is annexed to the affidavit as annexure-V. This circular shows that all the four matters which were sought to be referred to the Special Bench by reference letter of September 25, 1992, by two Members of the Tribunal were sought to be placed before the Special Bench. In addition thereto it is found at serial No. 6, Income-tax Appeal No. 1845/Hyd. of 1990, which is one of the matters in the present proceedings which was disposed of by the Special Bench. It is thereafter that nine cases in which a common question of construction of section 115J read with section 143(1)(a) of the Income-tax Act was involved were placed before the Special Bench. The cause list of cases posted for hearing before the Special Bench at Hyderabad is annexed as annexure-VI to the affidavit. It shows that the matters pertaining to the present proceedings were placed for hearing before the Special Bench along with four matters which have been mentioned in the reference letter dated September 25, 1992, of the two Members of the Tribunal, namely, Shri T. V. Rajagopala Rao and Shri Chander Singh. It is further clarified in the affidavit that arguments were concluded in all ..... X X X X Extracts X X X X X X X X Extracts X X X X
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